What is the difference between a “close corporation” and a “closely held corporation?”

A “closely held corporation” is a general term used to describe a smaller privately held corporation with few shareholders, usually family members or close associates.

On the other hand, some states have adopted special statutes for a “close corporation” which describes a corporation with a small number of shareholders that is authorized to function without directors. This bypasses some of the normal corporate formalities involved with a board of directors and supposedly simplifies the process.

My experience is that in some cases this may make operation of a small corporation easier but on the other hand, it sometimes complicates it because the business world is accustomed to dealing with directors.

For this reason, owners or shareholders of a “close corporation” may find themselves trying to explain to a banker or other business person why they don’t have directors and why they don’t need director approval for various corporate actions. As a practical matter, the “close corporation“ structure may not provide that much benefit after all.

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